6banking - Eto Talaga

130 2005 CENTRALIZED BAR OPERATIONS
BANKING LAWS
I. GOVERNING LAW (Bar Review SCOPE OF APPLICATION: The GBL

Materials in Commercial Law, Jorge primarily governs universal banks and
Miravite, 2002 ed.) commercial banks. It suppletorily
governs thrift banks, rural banks and
A. General banking laws other banking institutions.
1. General Banking Law (R.A. No. 8791)
2. New Central Bank Act (R.A. No. 7653) II. BANKS
 Entities engaged in the lending of
B. Special banking laws funds obtained in the form of deposits.
1. New Rural Banks Act (R.A. No. 7353) (Sec. 2)
2. Private Development Banks Act (R.A.  Entities duly authorized by the
No. 4093) Monetary Board to engage in the
3. Savings and Loan Association Act (R.A. business of regularly lending funds
No. 3779) obtained regularly from the public
4. Thrift Banks Act (R.A. No. 7906) through the receipt of deposits of any
kind.
C. Other laws affecting banks
1. Secrecy of Bank Deposits Law (R.A. QUASI-BANKS
No. 1405)  Entities engaged in the borrowing of
2. Unclaimed Balances Law (Act No. funds through the issuance, endorsement
3936) or assignment with recourse or
3. Philippine Deposit Insurance acceptance of deposit substitutes. (Sec.
Corporation Act (R.A. No. 3591) 95)
 Entities authorized to perform
3 kinds of entities that introduce funds universal or commercial banking
into the economy: functions may also engage in quasi-
1. Entities that obtains funds from banking functions.
the public in the form of deposits
and re-lend it to the public; (banks) FINANCIAL INTERMEDIARIES
2. Those that obtain funds in the  Persons or entities whose principal
form of deposit substitutes and re- functions include the lending, investing
lend the same; (quasi-banks) or placement of funds on evidences of
3. Those that lend funds from their indebtedness or equity deposited with
own assets. (Finance companies and them, acquired by them or otherwise
other financial intermediaries) coursed through them, either for their
own account or for the account of
5 PERSONS PRIMARILY INTERESTED IN others.
THE BUSINESS OF BANKING
1. Government Bank of International Settlements (BIS)
2. Depositors  A bank for, and whose stockholders
3. Investors are, central banks. It assists central
4. Creditors banks in managing and investing a part
5. Borrowers of their foreign exchange reserves by
lending such reserves out to central
GENERAL BANKING LAW OF 2000 (GBL) banks.
(RA No. 8791)  It is also provides initiatives and
ideas, and professional, organizational
PURPOSE: To promote and maintain a and material logistics for central bank
stable and efficient banking and cooperation in all areas of common
financial system that is globally interest. (Notes on Selected Commercial
competitive, dynamic and responsive to Laws A Guide for Bar Reviewees, Tristan
the demands of a developing economy. Catindig, 2003 ed.)
2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

C HAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat
(VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
San Beda College of Law
131
M EMORY A ID IN C OMMERCIAL L AW
ORGANIZATION AND OPERATION

A. Authority to Register/incorporate
 The SEC shall not register the articles NATURE OF BANKING BUSINESS
of incorporation of any bank or any  Impressed with public interest where
amendment thereto unless accompanied the trust and confidence of the public in
by a certificate of authority issued by general is of paramount importance such
the Monetary Board under its seal. (Sec. that:
14) 1. The appropriate standard of
 The certificate of authority shall not diligence must be very high, if
be issued unless the Monetary Board is not the highest, degree of
satisfied: diligence; highest degree of
1. That all requirements of existing care. (PCI Bank v. CA, 350 SCRA
laws and regulations to engage in 446, PBCom v. CA)
the business for which the  This applies only to cases
applicant is proposed to be where banks are acting in
incorporated have been their fiduciary capacity, that
complied with; is, as depository of the
2. That the public interest and deposits of their depositors.
economic conditions, both (Reyes v. CA)
general and local, justify the 2. Subject to reasonable regulation
authorization; under the police power of the
3. That the amount of the capital, state.
the financing, organization,
direction and administration, as  While an innocent mortgagee is not
well as the integrity and expected to conduct an exhaustive
responsibility of the organizers investigation on the history of the
and administrators, reasonably mortgagor’s title, in case of a banking
assure the safety of deposits and institution, it must exercise due
the public interest. diligence before entering into said
contract, and cannot rely upon what is
B. Organization of a Bank or Quasi- or is not annotated on the title. Reason:
Bank Before a loan is approved,
 Requirements: representatives are sent to the premises
1. The entity is a stock corporation; offered as collaterals and investigate
2. Its funds are obtained from the who the real owners are. (DBP vs. CA,
public, i.e. 20 or more persons; and 331 SCRA 267)
3. The minimum capital requirements
prescribed by the Monetary Board are  The business of a bank is one
satisfied. (Sec. 8) affected by public interest for
which reason the bank should
C. Authority to engage in banking or guard against loss due to
quasi-banking functions negligence and bad faith. It is
 A person or entity cannot engage in expected to ascertain and verify
banking or quasi-banking functions the identities of the persons it
without a certificate of authority from transacts business with. (UCPB vs.
the BSP. (Sec. 6) Ramos, G.R. No. 147800, November
11, 2003, Callejo, J.)
 The determination of whether a
person or entity is performing banking or  Due diligence required of banks
quasi-banking functions without BSP extend even to persons, or
authority shall be decided by the institutions like the GSIS, regularly
Monetary Board. engaged in the business of lending
money secured by real estate
C OMMERCIAL L AW C OMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
mortgages. (GSIS vs. Eduardo

Santiago, G.R. No. 155206.
October 28, 2003)
III. CLASSIFICATION OF BANKS ORDINARY BANKING

1. Universal banks- Primarily governed CORPORATION CORPORATION
by the General Banking Law (GBL), May be a stock or non- Must generally be
can exercise the powers of an stock corporation a stock
investment house and invest in non- corporation
allied enterprises and have the May issue par value or Shall issue par
highest capitalization requirement. no par value stocks. value stocks only.
(Sec. 9)
2. Commercial banks- Ordinary banks
May be registered Must secure a
governed by the GBL which have a
with the SEC without certificate of
lower capitalization requirement any certificate of authority from the
than universal banks and cannot authority issued by a Monetary Board
exercise the powers of an government agency. before it can
investment house and invest in non- register with SEC.
allied enterprises. May purchase/acquire May not
3. Thrift banks – These are a) Savings its own shares for a purchase/acquire
and mortgage banks; b) Stock savings legitimate corporate its shares or
and loan associations; c) Private purpose; provided accept them as
development banks, which are that, it has security for a loan.
unrestricted retained Except: when
primarily governed by the Thrift
earnings in its books authorized by the
Banks Act (R.A. 7906). to cover the shares to Monetary Board. In
4. Rural banks – Mandated to make be such case, the
needed credit available and readily purchased/acquired. bank must sell or
accessible in the rural areas on dispose of said
reasonable terms and which are shares within 6
primarily governed by the Rural months from the
Banks Act of 1992 (RA 7353). time of their
5. Cooperative banks – Those banks acquisition. (Sec.
10)
organized whose majority shares are
Must be composed of Also composed of
owned and controlled by 5 to 15 directors, 5 to 15 directors.
cooperatives primarily to provide each of whom shall In case of merger
financial and credit services to own at least one (1) or consolidation,
cooperatives. It shall include share of the capital the number of
cooperative rural banks. They are stock of the directors shall not
governed primarily by the corporation. exceed 21. (Sec.
Cooperative Code (RA 6938). 17)
6. Islamic banks – Banks whose business May declare dividends May not declare
dealings and activities are subject to out of its unrestricted dividends, if any
retained earnings. of the conditions
the basic principles and rulings of
set forth under
Islamic Shari’a, such as the Al Sec. 57 are
Amanah Islamic Investment Bank of present.
the Philippines which was created by
RA 6848.
7. Other classification of banks as UNIVERSAL BANK COMMERCIAL
determined by the Monetary Board BANK
of the Bangko Sentral ng Pilipinas. Authority to exercise No such additional
(Sec. 3) additional powers powers
other than those
authorized for
commercial banks
May invest in the May only invest in
equities of allied, equities of allied
whether financial or enterprises,
C HAIRPERSONS
133
non-financial, and whether financial - Liabilities of the
non-allied enterprises or non-financial BSP and of other
(Sec. 24) banks which are
Powers: denominated in
1. The powers General powers Philippine currency
authorized for a incident to and are subject to
commercial bank; corporations payment in legal
2. The powers of an 2. Such powers as tender upon demand
investment house; may be by the presentation
and necessary to of checks. (Sec. 58,
3. The power to carry on the NCBA)
invest in non-allied business of
enterprises. (Sec. commercial
23) banking: EQUITY INVESTMENTS
Universa Comm’l
l Bank Bank
4. The power to a. Accepting
(Sec. 24- (Sec. 30-
invest in non-allied drafts and
enterprises. (Sec. issuing letter of 28) 32)
23) credits; Total 50% 35%
b. Discounting investment in Of net Of net
and negotiating allied worth worth
promissory enterprises
notes, drafts, Total 50% N/A
bills of exchange investment in Of net
and other non-allied worth
evidence of enterprises
debt; Equity 25% 25%
c. Accepting or investment in Of net Of net
creating demand any one worth worth
deposits; enterprise (Allied
receiving other only)
types of Equity
deposits and investment in 100% 100%
deposit financial allied Of equity Of equity
substitutes; enterprise:
d. Buying and thrift bank,  In other
selling foreign rural bank or financial
exchange and any financial allied
other debt allied enterprises
securities; enterprise (Sec. ,
e. Extending 25) investment
credit. (Sec. 29)  A publicly- shall
listed bank may remain a
UNIVERSAL & OTHER BANKS own up to 100% minority
of the voting holding.
COMMERCIAL
stock of only (Sec. 31)
BANK one other UB /
CB. (Sec. 25)
Authorized to Not so authorized
engage in quasi- Equity
banking functions investment in 100% 100%
without need for non-financial Of equity Of equity
approval allied
enterprises
May accept or Must seek approval
Equity Shall not
create demand of Monetary Board
investment in a exceed
deposits without before accepting
single non- 35% of the N/A
need for approval or creating demand
allied total
 Demand deposits deposits. (Sec. 33)
HEADS:
enterprise equity in Central Depository,

that Inc.
enterprise
nor shall
it exceed
35% of the
voting
stock in
that Non-Allied Enterprises
enterprise  Are all other enterprises not specified
as allied ones.
Equity 40% 40%
investment in NET WORTH
Quasi-Banks  The total of the unimpaired paid-in
capital including paid-in surplus,
retained earnings and undivided profit,
net valuation reserves and other
Allied Financial Allied Non- adjustments as may be required by the
Enterprises financial Bangko Sentral. (Sec. 24)
Enterprises
RISK-BASED CAPITAL
1. Leasing 1. Warehousing  The minimum ratio prescribed by the
companies companies
Monetary Board which the net worth of a
2. Banks 2. Storage
3. Investment companies bank must bear to its total risk assets
houses 3. Safety which may include contingent accounts.
4. Financing deposit box  However, the Monetary Board may
companies companies require or suspend compliance with such
5. Credit card 4. Companies ratio whenever necessary for a maximum
companies primarily engaged in period of one year; that such ratio shall
6. Financial the management of be applied uniformly to banks of the
institutions mutual funds but same category (Sec. 34).
catering to small not in mutual funds
 Effect of non-compliance with the
and medium scale themselves
industries, 5. Manageme prescribed minimum ratio:
including venture nt corporations 1. Distribution of net profits may
capital engaged in an be limited or prohibited and MB may
corporations activity similar to require that part or all of the net
7. Companies the management of profits be used to increase the
engaged in stock mutual funds capital accounts of the bank until
brokerage or 6. Companies the minimum requirement has been
securities engaged in met; or
brokerage providing computer
2. Acquisition of major assets and
8. Companies services
engaged in foreign 7. Insurance making of new investments may be
exchange companies or restricted. EXCEPT: purchases of
dealership or brokerages evidence of indebtedness guaranteed
brokerage 8. Companies by the Government (Sec. 34).
9. Insurance engaged in house 3. In case of a bank merger or
companies (not building and home consolidation, or when a bank is
allowed for development under rehabilitation under a program
commercial banks) 9. Companies approved by BSP, the MB may
10. Holding providing drying or
temporarily relieve the surviving
companies milling facilities for
investing in allied agricultural crops bank, consolidated bank, or
and non-allied 10. Bank constituent bank or corporations
enterprises (not service corporations under rehabilitation from full
allowed for 11. Philippine compliance with the required capital
commercial banks) Clearing House ratio.
Corporation
12. Philippine
C HAIRPERSONS
135
1. The total amount of loans extended
by a bank to any person, partnership,
association, corporation or other entity
shall at no time exceed 20% of the net
worth of such bank.
2. The total amount of loans may be
increased by additional 10% of the net
IV. FUNCTIONS OF BANKS worth of such bank provided the
POWERS OF BANKS SPECIFIC additional liabilities of any borrower are
FUNCTIONS OF adequately secured by trust receipts,
BANKS shipping documents, warehouse receipts
or other similar documents transferring
1.General/corporate/i a. Loan or securing title covering readily
ncidental function marketable, non-perishable goods which
2. Necessary (Sec. 29) b. Deposit must be fully covered by insurance;
3. Other powers (Sec. function  The prescribed ceiling shall include:
55) c. Other
a. The direct liability of the maker
functions
or acceptor of paper discounted
with or sold to such bank and the
A. LOAN FUNCTION
liability of a general endorser,
Requirement for Grant of Loans
drawer or guarantor who obtains
 Before granting a loan, a bank must
a loan or other credit
ascertain that the debtor is capable of
accommodation from or discount
fulfilling his commitments to the bank.
paper with or sells paper to such
 Rules:
banks;
1. A bank may demand from its
b. In the case of an individual who
applicants a statement of their assets
owns or controls a majority
and liabilities and of their income and
interest in a corporation,
expenditures and other information.
c. partnership, association or any
2. Should such statements prove to be
other entity, the liabilities of the
false or incorrect, the bank may
said entities to the bank;
terminate any loan granted on the basis
d. In a case of a corporation, all
of said statements and shall have the
liabilities to such bank of all
right to demand immediate repayment
subsidiaries in which such
or liquidation of obligation. (Sec. 40)
corporation owns or controls a
majority interest; and
Classification of Loans
d. In the case of a partnership,
Unclassified Classified Loans association, or other entity, the
Loans liabilities of the member thereof
Those that do not Those that have
to such bank.
have a greater– extraordinary risks
than–normal risk, of loss in collection
 Exclusions from the limits:
and the borrower due to some defects a. Loans secured by obligations of
has apparent such as bad debts or the Bangko Sentral or the
ability to satisfy it those under Philippine Government;
in full and no loss litigation. b. Loans fully guaranteed by the
in ultimate government;
collection is c. Loans covered by assignment of
anticipated. deposits maintained in the
lending bank and held in the
Philippines;
Limit on loans, credit accommodations d. Loans, credit accommodations
and guarantees (Sec. 35) and acceptances under letters of
credit to the extent covered by
A. Single Borrower’s Limit (SBL) Rules margin deposits; and
HEADS:
e. Other loans or credit a. His spouse or relative within the

accommodations which the MB first degree of
may specify as non-risk items. affinity/consanguinity or relative
by legal adoption.
Joint and Solidary Signature (JSS) b. A partnership in which the
Practice stockholder or his spouse or any
 A common banking practice requiring of his relatives mentioned above
as an additional security for a loan is a general partner.
granted to a corporation the joint and c. A co-owner with the stockholder
solidary signature of a major stockholder or the stockholder’s spouse or
or corporate officer of the borrowing relative mentioned above of
corporation. (Security Bank v. Cuenca, property/right/interest
341 SCRA 781) (mortgaged, pledged or assigned
Note: While R.A. 8791 provides for the to secure the loan or credit
rates of 20% and 10% respectively, the accommodations, except when
Bangko Sentral has not yet implemented the mortgage, pledge or
such rates. The prevailing rates are 25% assignment covers only said co-
and 15% respectively. owner’s undivided interest.
4. Related Interest –
B. DOSRI Accounts (Directors, Officers, a. Spouse, relatives within first
Stockholders, and Related Interests) degree of consanguinity or
 Requisites: (BSP Circular No. 170) affinity, or relative by legal
a. The borrower is director, officer, or adoption of a DOS.
any stockholder of a bank and related b. Partnerships of which a DOS or
interest. his spouse or relative within the
b. He contracts a loan or any form of first degree of consanguinity or
financial accommodation affinity, or relative by legal
c. The loan or financial accommodation adoption, is a general partner.
is from (1) his bank or (2) a bank that is c. Co-owner with the DOS or his
spouse or relative within the
a subsidiary of a bank holding company first degree of consanguinity or
of which both his bank and lending bank affinity, or relative by legal
are subsidiaries, (3) a bank in which a adoption, of the
controlling proportion of the shares is property/interest/ right
owned by the same interest that owns a mortgaged, pledged, assigned to
controlling proportion of the shares of secure the loans or credit
his bank; and accommodations, except when
d. The loan or financial accommodation the mortgage, pledge or
of the DOS, singly or with that of his assignment covers only said co-
related interest, is in excess of 5% of the owner’s undivided interest.
capital and surplus of the lending bank d. Corporation with inter-locking
or in the maximum amount permitted by directors.
law, whichever is lower. e. Corporation wherein 20% of the
 Who are covered (BSP Circular No. capital stock is owned by the
170): DOS and/or their spouses or
1. Directors – Directors of the lending relatives mentioned above.
bank f. Corporation wholly or majority
2. Officers – Either identified in the by- owned or controlled by any
laws or are generally known as such related entity or a group of
3. Stockholders – those whose related entities in items (b), (d),
stockholdings, individually and/or and (e).
together with any of the following
persons, amount to 2% or more of the  Restrictions under the GBL and
total subscribed capital stock of the NCBA:
bank: a. No director or officer of any bank
shall, directly or indirectly, borrow
C HAIRPERSONS
137
from such bank nor shall be appraised value of the insured
guarantor, endorser or surety for improvements. (Sec. 37)
loans from such bank to others, or in 2. Those secured by chattels and
any manner be obligor or incur any intangible properties (such as patents,
contractual liability to the bank, trademarks, trade names and copyrights)
except with the written approval of shall not exceed 75% of the appraised
the majority of all the directors of value of the security. (Sec. 38)
the bank, excluding the director
concerned. The written approval D. The Monetary Board is authorized to
shall not be required for loans issue regulations which:
granted to officers under a fringe 1. Prescribe requirements for unsecured
benefit plan approved by the Bangko loans and credit accommodations (Sec.
Sentral. 41)
b. Dealings of a bank with any of its 2. Prescribe further security
DOSRI shall be upon terms not less requirements (Sec. 42)
favorable to the bank than those 3. Reduce or increase maximum ratios
offered to others. (ARMS LENGTH established (Sec. 42)
RULE) 4. Prescribe maturities and other related
c. Loans extended to DOSRI shall be terms and conditions (Sec. 43)
limited to an amount equivalent to
their respective unencumbered B. DEPOSIT FUNCTION
deposits and book value of their KINDS OF DEPOSITS BETWEEN BANK
paid-in capital contribution in the AND DEPOSITOR
bank. 1. As debtor-creditor
 Except – a. Savings
i. Loans, credit b. Time
accommodations, and c. Demand
guarantees secured by assets  Characteristics:
considered as non-risk by the a. In the nature of irregular
Monetary Board. deposits. (Serrano vs. Central Bank,
96 SCRA 96)
ii. Loans, credit b. Contract of loan/mutuum with
accommodations, and the depositor as creditor
advances to officers in the c. Bank acquires ownership of the
form of fringe benefits. thing deposited and the right to
iii. Cooperative bank with use and dispose
regard to its cooperative d. Money deposited is commingled
shareholders. with the other money,
d. The resolution approving the loan constituting a common fund.
shall be entered in the records of the e. Not preferred credits (Central
bank and transmitted to the BSP Bank v. Morfe)
e. Waiver of secrecy of deposits of 2. As lessor-lessee
whatever nature in all banks in the a. Safety deposit boxes
Philippines by the borrower. No 3. As trustee-trustor
waiver is required if the related a. Trust account
interests are the borrower 4. As bailee-bailor
f. Information obtained form a. Deposit strictly for safekeeping
examination are strictly confidential and for specific purposes
5. As agent-principal:
C. Rules on amount of secured loans a. Deposit of check for collection
1. Those secured by real estate shall not b. Deposit for specific purpose
exceed 75% of the appraised value of the c. Deposit for safekeeping
real estate security, plus 60% of the
HEADS:
Types of deposit accounts (Handbook on

Bank Deposits, A. Viray, 1998 ed.)  The fiduciary nature of a bank-
1. Individual depositor relationship does not convert
2. Joint the contract between the bank and its
a. “And” account depositors from a simple loan to a trust
 Co-ownership agreement, whether express or implied.
 The signature of both co- Failure by the bank to pay the depositor
depositors are required for is failure to pay a simple loan and not a
withdrawals. breach of trust. The law simply imposes
b. “And/or” account on the bank a higher standard of
 Either one of the co- integrity and performance in complying
depositors may deposit and with its obligations under the contract of
withdraw from the account simple loan, beyond those required of
without the knowledge, consent non-bank debtors, under a similar
and signature of the other. And contract of simple loan. (CBTC vs. CA,
upon the death of one, the G.R. No. 138569, September 11, 2003)
survivor may withdraw the entire  This fiduciary relationship means
balance on deposit. that the bank’s obligation to observe
 It may be deemed a “high standards of integrity and
survivorship agreement performance” is deemed written into
depending on the intention of every deposit agreement between a
the parties; aleatory contract bank and its depositor. The fiduciary
supported by a lawful nature of banking requires banks to
consideration which is valid assume a degree of diligence higher than
unless when made as a mere that of a good father of a family. (CBTC
cloak to hide an inofficious vs. CA, G.R. No. 138569, September 11,
donation, to transfer property in 2003)
fraud of creditors, or to defeat
the legitime of a forced heir. SUSPENSION OF PAYMENT ON ITS
(Rivera v. People’s Bank) DEPOSIT LIABILITIES
 In case a bank or quasi-bank notifies
Deposit substitutes the Bangko Sentral or publicly announces
 An alternative form of obtaining funds a bank holiday, or in any manner
from the public, other than deposits, suspends the payment of its deposit
through the issuance, endorsement, or liabilities continuously for more than 30
acceptance of debt instruments for the days, the Monetary Board may summarily
borrower’s own account, for the purpose and without need for prior hearing close
of re-lending or purchasing of such banking institution and place it
receivables and other obligations. (Sec. under receivership of the Philippine
95, RA 7653) Deposit Insurance Corporation. (Sec. 53)
DEPOSIT DEPOSIT C. OTHER FUNCTIONS

SUBSTITUTE 1. Receive in custody funds, documents
No security given to Guaranteed by and valuable objects (as bailee or
guarantee certificates and trustee);
repayment; the other instruments. 2. Act as financial agent and buy and
depositor relies on (Handbook on Bank
sell, by order of and for the account
the stability and Deposits, A. Viray,
reputation of the 1998 ed.) of their customer, shares, evidences
bank. of indebtedness and types of
securities;
 A bank has the right to set-off to the 3. Make collection and payments for the
deposits in its hands for the payment of account of others and perform such
any outstanding indebtedness to it on other services for their customer as
the part of the depositor (Gullas v. PNB, are not incompatible with banking
PNB v. CA) business (as agent);

C HAIRPERSONS
139
4. Upon prior approval of the Monetary 2. Without order of a court of
Board, act as managing agent, component jurisdiction, disclose to
adviser, consultant or administrator any unauthorized person any
of investment management/ information relative to the funds or
advisory/consultancy accounts; and properties in the custody of the bank
5. Rent out safety deposit boxes (as belonging to private individuals,
lessor). corporations, or any other entity;
3. Accept gifts or any other form of
Note: The bank shall act as depositary or remuneration in connection with the
as an agent shall keep the funds, approval of a loan or other credit
securities and other effects which it accommodation from said bank;
receives duly separated from its own 4. Overvalue or aid in overvaluing any
assets and liabilities. (Sec. 53) security for the purpose of influencing
in any way the actions of the bank or
any bank; or
5. Outsource inherent banking functions
(i.e. new accounts, tellers).
V. PROHIBITIONS  Rationale: So as not to violate the
A. On banks: Secrecy of Bank Deposits Law.
1. To directly act as insurer (Sec. 54) (Handbook on Bank Deposits, A. Viray,
2. For banks or quasi-banks to declare 1998 ed.)
dividends, if at the time of declaration:  However, a bank may outsource, upon
a. Its clearing account with the prior approval of the monetary board the
Bangko Sentral is overdrawn; following functions:
b. It is deficient in the required a. All information technology
liquidity floor for government systems and processes, except
deposits for 5 or more for certain functions affecting
consecutive days; the ability of the bank to ensure
c. It does not comply with the the fit of technology services
liquidity standards/ratios deployed to meet its strategic
prescribed by the Bangko and business objectives and
Sentral for purposes of comply with pertinent laws and
determining funds available for regulations;
dividend declaration; b. Data imaging, storage, and other
d. It has committed a major related systems;
violation as may be determined c. Clearing and processing of
by the Bangko Sentral. (Sec. 57) checks not included in the
3. To conduct business in an unsafe or Philippine Clearing House
unsound manner (Sec. 56) System;
4. Publication of capital stock (Sec. 62) d. Printing of bank statements;
5. Unauthorized advertisement or e. Credit card services;
business representation (Sec. 64) f. Printing of bank loan statements
6. To employ casual or non-regular and other non-deposit records,
personnel or too lengthy probationary bank forms and promotional
personnel in the conduct of its business materials;
involving bank deposits. (Sec. 55) g. Credit investigation and
 Rationale: To prevent violation of collection;
Bank Secrecy Law. h. Processing of export, import and
other trading transactions;.
B. On directors, officers, employees, i. Transfer agent services for debt
or agents of banks: and equity services;
1. Make false entries in any bank report j. Property appraisal;
or statement or participate in any k. Property management services;
fraudulent transaction;
HEADS:
l. messenger, courier and postal 3. The act or omission has caused

services; any undue injury, or has given any
m. Security guard services; unwarranted benefits, advantage or
n. Vehicle service contracts preference to the bank or any party in
o. Janitorial services; the discharge by the director or officer
p. Other services determined by of his duties and responsibilities through
the monetary board. manifest partiality, evident bad faith or
gross inexcusable negligence;
C. On borrowers: 4. The act or omission involves
1. Fraudulently overvalue property entering into any contract or transaction
offered as security for a loan from the manifestly and grossly disadvantageous
bank; to the bank, quasi-bank or trust entity,
2. Make misrepresentations for the whether or not the director or officer
purpose of obtaining, renewing, or profited or will profit thereby.
increasing a loan or extending the
period thereof; VI. OWNERSHIP OF STOCKS OF A
3. Attempt to defraud the said bank in DOMESTIC BANK
the event of a court action to recover 1. Filipino
a loan or other credit  In case of a Filipino individual or a
accommodation; or domestic non-bank corporation, each
4. Offer any director, officer, employee may own up to 40% of the outstanding
or agent of a bank any gift, fee, voting stock of a local bank.
commission, or any other form of 2. Foreign
compensation in order to influence  Foreign individuals and non-bank
such persons into approving a loan or corporations may own or control up to
other credit accommodation an aggregate of 40% of the voting stock
application. of a domestic bank.
 The percentage of foreign-owned
D. On examiners, BSP or government voting stocks in a bank shall be
officers and employees assigned to determined: (GRANDFATHER RULE)
supervise, examine, assist or render a. If individuals: by the citizenship
technical assistance to any bank: Make of the individuals
false reports or suppress material facts. b. If corporations: by the
citizenship of the controlling
Conducting Business in an Unsafe or stockholders of the corporation,
Unsound Manner irrespective of the place of
 In determining whether a particular incorporation. (Sec. 11)
act or omission, which is not otherwise
prohibited by law, rule or regulation ACT LIBERALIZING ENTRY OF FOREIGN
affecting banks, quasi-banks, or trust BANKS (R.A. NO. 7721)
entities, may be deemed as conducting
business in an unsafe or unsound  The Monetary Board authorizes
manner, the MB shall consider any of the foreign banks to operate through any of
following circumstances:(sec 56, GBL) the following modes of entry:
1. The act or omission has resulted 1. By acquiring, purchasing or owning up
or may result in material loss or damage, to 60% of the voting stock of an
or abnormal risk or danger to the safety, existing bank;
stability, liquidity or solvency of the 2. By investing in up to 60% of the voting
institution; stock of a new banking subsidiary
2. The act or omission has resulted incorporated under laws of
or may result in material loss or damage, Philippines;
or abnormal risk to the institution’s 3. By establishing branches with full
depositors, creditors, investors, and banking authority, provided: a)
stockholders or to the BSP or to the foreign bank may avail itself of only
public in general. one mode of entry and b) foreign
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141
bank or Philippine corporation may 1. As shall be necessary for its own use
own up to 60% of the voting stock in the conduct of its business, provided:
only one domestic bank or new a. The total investment in such real
banking subsidiary (Sec. 2). estate and improvements shall
 Entries under the second and third not exceed 50% of combined
modes are restricted to banks among the capital amounts; and
top 150 foreign banks in the world or top b. the equity investment of a bank
5 banks in their country of origin. in another corporation engaged
 Minimum capitalization: primarily in real estate shall be
1. For locally incorporated subsidiaries considered as part of the bank's
– equal to that of domestic banks of the total investment in real estate,
same category unless otherwise provided by the
2. For foreign bank branches – not less Monetary Board. (Sec. 51)
than the US$ equivalent of P210M 2. As mortgaged to it, conveyed to it in
 Amendments introduced by GBL 2000 satisfaction of a debt, or as it shall
1. Within seven years from effectivity of purchase at forced sales or to secure
the GBL, foreign banks may be allowed debts, provided, however, that property
to own up to 100% equity of only one acquired under such circumstance shall
domestic bank as a mode of entry. (Sec. be disposed of by the bank within a
73, GBL) period of 5 years, provided that the bank
2. Other foreign individuals and non- may after said period continue to hold
bank corporation may own up to 40% of the property for its own use, subject to
the voting stock of a domestic bank; the (1). (Sec. 52)
nationality of the controlling
shareholders of the non-bank RULES ON FORECLOSURE BY A
corporations will be traced to determine MORTGAGEE-BANK OF A REAL ESTATE
the foreign ownership of the domestic MORTGAGE
bank (Sec. 11, GBL)  Application: Judicial or extrajudicial
foreclosure
FOREIGN BANKS (Secs. 72–78)
1. Entry: Governed by the provisions of JUDICIAL EXTRAJUDICIAL
the Foreign Bank Liberalization Act and Right of redemption
the Offshore Banking System Decree. Within 1 year from 1. Mortgagor is a
(Sec. 72) registration of the natural person –
2. Revocation of license to do business foreclosure sale Within one year
in the Philippines: The Monetary Board (exception to Rule 68) after the
may revoke such license on the grounds registration of sale
with Register of
that the foreign bank is insolvent or in
Deeds (Sec. 1(3) SC
imminent danger thereof or that its Cir. AM No. 99-10-
continuance in business will involve 05)
probable loss to those transacting 2. Mortgagor is a
business with it. (Sec. 78) juridical person –
At any time before
VII. OWNERSHIP OF REAL PROPERTY the registration of
GENERAL RULE: A bank cannot acquire the certificate of
and own real property. Rationale: Banks foreclosure sale
which in no case
are not engaged in the business of
shall be more than
acquiring and possessing real property. 3 months after
Also, banks must maintain liquidity at all foreclosure,
times to enable it to perform its whichever is
functions. Thus, Banks must as much as earlier.
possible retain only assets that are easily Redemption price:
marketable. Amount due under the mortgage deed +
EXCEPTIONS: interest + all the cost and expenses
HEADS:
incurred by the bank or institution from liable to innocent third persons where
the sale and custody of the property less the representation is made in the course
the derived income. of its business by an agent acting within
Right of purchaser to possess property: the general scope of his authority even
Immediately after the date of the though, in the particular case, the agent
confirmation of the auction sale. is secretly abusing his authority and
attempting to perpetrate a fraud upon
 To enjoin or restrain the conduct of his principal or some other person, for
foreclosure proceedings, the petitioner his own ultimate benefit. (Philippine
must file a bond conditioned that he will Banking Corp. vs. CA and Marcos, G.R.
pay all the damages which the bank may No. 127469. January 15, 2004)
suffer by the injunction. (Sec. 47)
IX. TRUST OPERATIONS (Secs. 79-93)
VIII. DIRECTORS & OFFICERS  Only a stock corporation or a person
Fit and Proper Rule duly authorized by the Monetary Board
 To maintain the quality of bank shall act as a trustee or administer any
management and afford better trust or hold property in trust or on
protection to depositors and the public deposit for the use, benefit, or behalf of
in general the Monetary Board shall others. (Sec. 79)
prescribe, pass upon and review the  Powers of trust entities:
qualifications and disqualifications of 1. Act as trustee on any mortgage or
individuals elected or appointed as bank bond issued by any municipality,
directors or officers and disqualify those corporation or body politic and to accept
found unfit. (Sec. 16) and execute any trust consistent with
law
2. Act under the order or appointment of
INDEPENDENT DIRECTOR any court as guardian, receiver, trustee,
 A person other than an officer or or depositary of the estate of any minor
employee of the bank, its subsidiaries or or incompetent person, and as receiver
affiliates or related interests. and depositary of any money paid into
court by parties to any legal proceedings
Prohibition on Public Officials 3. Act as the executor of any will when
GENERAL RULE: No appointive or it is named the executor thereof;
elective official whether full-time or 4. Act as administrator or the estate of
part-time shall at the same time serve as any deceased person, with the will
officer of any private bank. (Sec. 19) annexed, or when there is no will.
EXCEPTIONS: 5. Accept and execute any trust for the
1. As otherwise provided under Sec. 5 of holding, management and administration
the Rural Bank Act of any estate, real or personal, and the
2. Where such service is incident to rents, issues, and profits thereof.
financial assistance provided by the 6. Establish and manage common trust
government-owned or -controlled funds. (Sec. 83)
corporation to the bank  Prohibitions:
3. As otherwise provided under existing 1. No trust entity shall, for account of
laws. the trustor or the beneficiary of the
 A bank holding out its officers and trust, purchase or acquire property
agents as worthy of confidence will not from, or sell, transfer, assign or lend
be permitted to profit by the frauds they money or property to, purchase debt
may thus be enabled to perpetrate in from instruments of, any of the
the apparent scope of their employment; departments, directors, officers,
nor will it be permitted to shirk its stockholders or employees of the trust
responsibility for such frauds, even entity, relatives within the 1st the first
though no benefit may accrue to the degree of consanguinity or affinity, or
bank there from (10 Am Jur 2d, p. 114). the related interests, of such directors,
Accordingly, a banking corporation is officers and stockholders, unless the
transaction is specifically authorized by
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143
the trustor and the relationship of the 2. To promote and maintain
trustee and the other party involved in monetary stability and the
the transaction is fully disclosed to the convertibility of the peso.
trustor or beneficiary of the trust prior  Responsibilities:
to the transaction. (Sec. 80, GBL) 1. To provide policy directions in the
2. The trust business and all funds, areas of money, banking, and credit;
properties or securities received by any 2. To supervise bank operations
trust entity as executor, administrator, 3. To regulate the operations of finance
guardian, trustee, receiver or companies and non-bank financial
depositary shall be kept separate and institutions performing quasi-banking
distinct from the general business functions, and similar institutions.
including all other funds, properties, (Sec. 3)
and assets of such trust entity. (Sec. 87,
GBL)  Powers/functions:
1. Issuer of currency (Sec. 49-60)
X. PENALTIES FOR VIOLATION OF THE 2. Custodian of reserves (Secs. 64-
GBL (SEC. 66) 66, 94, 103)
1. As provided by specific provisions 3. Clearing channel or house;
2. Sections 34-37 of RA 7653 especially where the PCHC does
3. Suspension or removal of the director not operate (Sec. 102)
or officer 4. Banker of the government – the
4. Dissolution of the corporation by quo BSP shall be the official
warranto proceedings depository of the Government
and shall represent it in all
monetary fund dealings. (Secs.
110- 116)
5. Financial advisor of the
THE NEW CENTRAL BANK ACT (NCBA) government (Secs. 123-124) –
(R.A. No. 7653) Under Article VII, Sec. 20 of the
1987 Constitution, the President
PURPOSE: To maintain a central may contract or guarantee
monetary authority that shall function foreign loans but with the prior
and operate as an independent and concurrence of the Monetary
accountable body in the discharge of its Board.
responsibilities concerning money, 6. Source of credit (Secs. 61-63, 81-
banking and credit. 89, 109)
7. Supervisor of the banking system
THE BANGKO SENTRAL NG PILIPINAS (Sec. 25) – shall include the
(BSP) power to:
 The state’s central monetary a. Examine; extending to
authority; it is the government agency enterprises wholly or
charged with the responsibility of majority-owned or
administering the monetary, banking and controlled by the bank (Sec.
credit system of the country and is 7, RA 8791); this power may
granted the power of supervision and not be restrained by a writ
examination over bank and non-bank of injunction unless there is
financial institutions performing quasi- convincing proof that the
banking functions, including savings and action of the BSP is plainly
loan associations. (Busuego v. CA) arbitrary (Sec. 25)
 Primary objectives: b. Place a bank under
1. To maintain price stability receivership or liquidation
conducive to a balanced and (Sec. 30)
sustainable growth of the c. Initiate criminal prosecution
economy. of erring officers of banks.
HEADS:
8. Government agent (Secs. 117- 1. To take charge of the assets,

122) liabilities, and the management
thereof;
MONETARY BOARD (MB) 2. Reorganize the management;
 The body by which the powers and 3. Collect all monies and debts due said
functions of the Bangko Sentral are bank; and
exercised. (Sec.6) 4. Exercise all powers necessary to
 Composition: 7 members consist of restore its viability, with the power
the following: to overrule or rebuke the actions of
1. Chairman: Governor of the BSP the previous management and board
2. A member of the cabinet to be of directors of the bank or quasi-
designated by the President of the bank.
Philippines  The powers must be related to
3. Five (5) members who shall come preservation of assets, reorganization of
from the private sector, all of whom management and the restoration of
shall serve full-time. viability. Such power to revoke cannot
Note: The degree of diligence required extend to post-facto repudiation of
of the members of the MB, officials and perfected transactions, otherwise they
employees of the BSP in the performance would infringe against the non-
of their functions is extraordinary impairment clause of the Constitution.
diligence. (Sec.16, NCBA) The power to revoke contracts only
covers those that are deemed defective –
CORPORATE POWERS OF THE BSP i.e., void, voidable, unenforceable or
1. To adopt, alter and use a corporate rescissible. (First Phil. Int’l Bank v. CA,
seal which shall be judicially noticed 252 SCRA 259)
2. To enter into contracts  Termination:
3. To lease, own, sell property 1. When the MB is satisfied that the
4. To sue and be sued institution can continue to operate on its
5. To acquire and hold such assets and own and the conservatorship is no longer
incur such liabilities in connection with necessary;
its operations or as are essential to the 2. But if the continuance in business of
proper conduct of operation the bank would involve probable loss to
6. To compromise condone or release its depositors or creditors, proceedings
any claim of or settled liability to the for receivership and liquidation shall be
BSP pursued (Sec. 29).
7. To do and perform such other
necessary powers RECEIVERSHIP OF A BANK OR QUASI-
BANK/CLOSURE
CONSERVATORSHIP OF A BANK OR  Receivership is equivalent to an
QUASI-BANK injunction to restrain the bank in any
 Ground: State of continuing inability way. Thus, the appointment of a
or unwillingness to maintain a condition receiver operates to suspend the
of liquidity deemed adequate to protect authority of the bank and of its directors
the interest of depositors and creditors. and officers over its property and
 A conservator appointed by the BSP effects. (Villanueva v. CA)
may take over without the need of first
declaring the bank insolvent.  Grounds:
 Duration: Not to exceed 1 year A. Under NCBA
 Effects: 1. Inability to pay liabilities as they
1. Bank/quasi-bank retains juridical become due in the ordinary course
personality of business, but not including
2. Not a precondition to the inability to pay caused by
designation of a receiver extraordinary demands induced by
financial panic in the banking
 Powers of conservator: community;

C HAIRPERSONS
145
2. Insufficiency of realizable assets general public. (Central Bank v. CA, 220
to meet its liabilities; SCRA 536).
3. Inability to continue business  Only stockholders representing the
without involving probable losses to majority of the capital stock of a bank
its depositors or creditors; or have the personality to file a petition for
4. Willful violation of a cease and certiorari to be filed within 10 days from
desist order that has become final, receipt by the board of directors of the
involving acts or transactions which institution of the order directing
amount to fraud or a dissipation of receivership, liquidation or
the assets of the institution. (Sec. conservatorship. Reason: Stockholders
30) owning a majority of the shares are
B. Under GBL expected to be more objective in
1. Notification to the BSP or public determining whether the resolution is
announcement of a bank holiday plainly arbitrary and issued in bad faith.
(Sec. 53, GBL) (Sec. 30, NCBA; Central Bank vs. CA)
2. Suspension of payment of
deposit liabilities continuously for MANDATORY REQUIREMENTS FOR BANK
more than 30 days (Sec. 53, GBL) CLOSURE
3. Persistence in conducting 1. Examination by the appropriate BSP
business in an unsafe or unsound department as to the condition of the
manner. (Sec. 56, GBL) bank
2. Examination shows that the
condition of the bank is one of
 Receiver: insolvency
1. Banks – PDIC 3. Director shall inform the MB in
2. Quasi-banks – Any person of writing of such fact
recognized competence in banking or 4. MB shall find the statement of the
finance department to be true. (Banco Filipino v.
MB)
 Functions:
1. Immediate gathering and taking
charge of all the assets and liabilities of LIQUIDATION
the institution and administering them  Grounds:
for the benefit of creditors 1. The condition of the bank is one of
2. General powers of a receiver insolvency or that its continuance would
3. Determination ASAP but not later involve probable loss to its depositors
than 90 days whether the institution and creditors.
should undergo rehabilitation or 2. A determination by the MB that the
liquidation. bank cannot be rehabilitated.
 Procedure:
 Note the distinctions between 1. Receiver shall file ex parte, with the
rehabilitation and liquidation. proper RTC, a petition for assistance in
the liquidation of the institution
“CLOSE NOW, HEAR LATER” SCHEME pursuant to a liquidation plan adopted
 Sec. 29 of the Central Bank Act does by the PDIC for general application to all
not contemplate prior notice and hearing closed banks. In case of quasi-banks, the
before a bank is placed under liquidation plan shall be adopted by the
receivership. It is enough that such Monetary Board.
action is made the subject of a 2. He shall convert the assets of the
subsequent judicial review. The purpose institution to money for the purpose of
of the scheme is to protect the paying the debts of the institution. (Sec.
depositors, creditors, stockholders and 30)
HEADS:
3. Payment shall be in accordance with acceptance in the payment of debts,

the rules on concurrence and preference both public and private, is at the option
of credits of the creditor.
EFFECTS OF APPOINTMENT OF However, a check which has been

RECEIVER/ LIQUIDATION cleared and credited to the account of
1. Suspension of operation the creditor shall be equivalent to a
2. The assets under receivership or delivery to the creditor of cash in an
liquidation shall be deemed in custodia amount equal to the amount credited to
legis in the hands of the receiver and his account (Sec. 60).
shall be exempt from garnishment, levy,
attachment or execution (Sec. 30). MONETARY STABILIZATION
3. Bank is not liable to pay interest on 3 Important Tools to Achieve Price
deposits during the period of suspension Stability
of operation (Overseas Bank v. CA) 1. Loans to Banks (Sec. 83)
4. The corporation retains its legal a. If BSP wants to increase money
personality (Teal Motor Co. v CFI) supply, it opens the rediscount
5. Deposits do not become preferred window
credits. (CB v. Morfe) b. If BSP wants to decrease money
supply, it closes the rediscount
LEGAL TENDER window or charges very high
 All notes and coins issued by the interest rates for rediscounted
Bangko Sentral are fully guaranteed by notes
the Republic and shall be legal tender in 2. Open Market Operations (Sec. 90)
the Philippines for all debts, both public a. If BSP wants to increase money
and private. (Sec. 52) supply, it buys government
securities
Legal tender power of coins b. If BSP wants to decrease money
1. 25 centavos and above: In amounts supply, it sells government
not exceeding P50.00 securities
2. 10 centavos or less: In amounts not 3. Reserve Requirements (Sec. 94)
exceeding P20.00  Rules:
a. The required reserves of each
bank shall be proportional to the
volume of its deposit liabilities.
BSP Authority to Replace b. Since the required reserves are
1. Notes for any series or denomination imposed primarily to control the
– More than 5 years old volume of money, the Bangko
2. Coins – More than 10 years old Sentral shall not pay interests
Rules: thereon. (Sec. 94)
1. Notes and coins called in for c. Deposits maintained with the
replacement shall remain legal tender Bangko Sentral as part of the
for a period of one year from the date of reserve requirements shall be
call. exempt from attachment,
2. After that period, they shall cease to garnishment, or any other order
be legal tender during the following year or process of any court or
or for such longer period as MB may agency. (Sec. 103)
determine.
3. After the expiration of this latter PROHIBITIONS ON THE BSP
period, the notes and coins which have 1. It shall not acquire shares of any
not been exchanged shall cease to be a kind or accept them as collateral, and
liability of BSP and shall be demonetized shall not participate in the ownership or
(Sec. 57). management of any enterprise, either
directly or indirectly; and
Checks representing demand deposits 2. It shall not engage in development
do not have legal tender power and their banking and financing. (Sec. 128)
C HAIRPERSONS
147
b. A taxpayer who has filed an
SECRECY OF BANK DEPOSITS LAW (R.A. application for compromise of his
No. 1405) tax liability by reason of financial
PURPOSES: incapacity to pay his tax liability.
1. To encourage people to deposit in He must file a written waiver of
banks his privilege under RA 1405 or
2. To discourage private hoarding so other general or special laws
that banks may lend such funds and (Sec. 6[f], NIRC).
assist in the economic development. 3. Inquiry or examination by the Anti-
Money Laundering Council (AMLC) of any
COVERAGE particular deposit or investment with
 All deposits of whatever nature with any banking institution or non-bank
banks or banking institutions in the financial institution upon order of any
Philippines, including investments in competent court in cases of violation of
bonds issued by the Government of the the Anti-Money Laundering Law, when it
Philippines, its political subdivisions and has been established that there is
its instrumentalities. probable cause that the deposits or
investments are related to an unlawful
GENERAL RULE: The deposits covered activity or a money laundering offense,
by law are considered as of an except that no court order shall be
absolutely confidential nature and may required in the following unlawful
not be examined, inquired or looked into activities:
by any person, governmental, bureau, or a. Kidnapping for ransom under Art.
office. 267 RPC;
b. Comprehensive Dangerous Drugs
Prohibited Acts Act of 2002 (RA No. 9165);
1. Examination and inquiry or looking c. Hijacking and other violations
into all deposits of whatever nature with under RA 6235; destructive arson
the banks in the Philippines including and murder under RPC. Including
investments in bonds issued by the those perpetrated by terrorists
Government. against non-combatant persons
2. Any disclosure by any official or and similar targets.” (Sec. 11,
employee of any bank to any R.A. No. 9160 as amended by Sec.
unauthorized person of any information 8 of RA 9194)
concerning the said deposits. 4. Disclosure to the Treasurer of the
EXCEPTIONS: Philippines of dormant deposits for at
A. From R.A. No. 1405 least 10 years under the Unclaimed
1. Upon written permission of the Balances Act (Act No. 3936)
depositor;
2. In cases of impeachment; OTHER LAWS RELATING TO SECRECY OF
3. Upon order of a competent court in BANK DEPOSITS
cases of bribery or dereliction of duty of A. Foreign Currency Deposit Act (R.A.
public officials; No. 6426): Extends confidentiality to
4. In cases where the money deposited foreign currency deposits, but the law
or invested is the subject matter of the contains only one ground authorizing
litigation; (Sec. 2) examination: upon written permission of
B. From other laws the depositor.
1. Anti-Graft and Corrupt Practices Act
cases (R.A. No. 3019; added by analogy B. General Banking Law of 2000 (R.A.
in PNB vs. Gancayco); No. 8791):
2. Inquiry by the Commissioner of 1. No bank shall employ casual or non-
Internal Revenue into bank deposits of: regular personnel or too lengthy
a. A decedent to determine his gross probationary personnel in the conduct of
estate;
HEADS:
its business involving bank deposits.  Illegally acquired property extends to

(Sec. 55.4) cases where property is concealed by
2. No director, officer, employee, or being held by or recorded in the name of
agent of any bank shall, without court respondent’s spouse, ascendants,
order, disclose to any unauthorized descendants, relatives, or any other
person any information relative to the persons. (Banco Filipino Savings and
funds or properties in the custody of the Mortgage Bank v. Purisima)
bank belonging to private individuals,
corporations, or any other entity, REQUISTES FOR IN-CAMERA INSPECTION
provided that with respect to bank OF BANK DEPOSITS (Marquez vs.
deposits, the provisions of existing laws Desierto)
shall prevail. (Sec. 55(b)) 1. Pending case before a court of
3. Outsourcing of inherent bank competent jurisdiction
functions 2. Account must be clearly identified
3. The inspection is limited to the
C. New Central Bank Act (R.A. No. subject of the pending litigation
7653): 4. The bank personnel and account
1. Any director, officer, stockholder holder must be present during the
who, together with his related interests, inspection
contracts a loan or any form of financial 5. The inspection must cover only the
accommodation from: account identified in the pending case
a. His bank; or
b. From a bank - R.A. NO. 1405 viz. POWER OF THE BSP
i. which is a subsidiary of a bank TO CONDUCT PERIODIC AND/OR
holding company of which both SPECIAL EXAMINATIONS (Sec. 4, GBL &
his bank and the lending bank Sec. 25, NCBA)
are subsidiaries; or  Prof. Aquino and Prof. Viray believe
ii. in which a controlling that the general rule still applies.
proportion of the shares is Hence, the deposit remains confidential
owned by the same interest that PENALTIES
owns a controlling proportion of  Imprisonment of not more than 5
the shares of his bank, years or a fine not more than P20,000 or
in excess of 5% of the capital and surplus both, in the discretion of the court.
of the bank or in the maximum amount
permitted by law, whichever is lower,
shall be required by the lending bank to
waive the secrecy of his deposits of
whatever nature in all banks in the
Philippines (Sec. 26).
2. Periodic and special examinations by ANTI-MONEY LAUNDERING ACT OF 2001
the BSP (Sec. 25) (R.A. No. 9160, as amended by R.A.
9194)
D. Anti-Money Laundering Act (R.A. No.
9160): Provides for another exception to PURPOSES:
confidentiality, which is applicable to 1. To protect and preserve the integrity
both peso and foreign currency deposits. and confidentiality of bank accounts, to
ensure that the Philippines shall not be
 Garnishment of bank deposit of used as a site for unlawful money
judgment debtor does not violate RA laundering activities; and
1405. Its purpose is merely to secure 2. To pursue State’s foreign policy to
information as to the name of the extend cooperation in transnational
depositor and whether or not the investigations and prosecution on money
defendant had a deposit in said bank, laundering activities.
only for purposes of garnishment. (China
Banking Corporation v. Ortega)

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COVERED TRANSACTION Act that is about to be, is being or has
 Transaction, in cash or other been committed.
equivalent monetary instrument in excess g. Analogous transactions to any of the
of P500,000, within one banking day foregoing.
COVERED ENTITIES JURISDICTION

a. Banks  All cases: RTC
b. Non-banks  Public officers and private persons in
c. Quasi-banks conspiracy with them: Sandiganbayan
d. Trust entities; and
e. All other institutions, their PHILIPPINE DEPOSIT INSURANCE
subsidiaries and affiliates supervised CORPORATION (PDIC) ACT
or regulated by the BSP (R.A. No. 3591, as amended)
PERSONS LIABLE PURPOSES:

a. Any person knowing that any 1. To create a government-owned
monetary instrument or property entity, the PDIC;
represents, involves, or relates to, the 2. To insure the deposit liability of
proceeds of any unlawful activity banks in an account up to P250,000 for
transacts or attempts to transact said every single depositor of each bank
monetary instrument or property. irrespective of the number of accounts
b. Any person knowing that any therewith.
monetary instrument or property
involves the proceeds of any unlawful PDIC
activity, performs or fails to perform any  Functions:
act as a result of which he facilitates the A. Insurance
offense referred to in number 1 above. The PDIC assesses and collects
c. Any person knowing that any insurance assessments from member-
monetary instrument or property is banks to insure member-banks’ deposit
required under this Act to be disclosed accounts. In case of bank closures, the
and filed with the AMLC fails to do so. PDIC processes and services claims for
insured deposits. Deposits are insured up
SUSPICIOUS TRANSACTIONS to a maximum coverage of P250,000 per
 Transactions with covered institutions depositor.
regardless of the amounts involved, B. Bank Examination
where any of the following
circumstances exists: Under the new law, PDIC's authority to
a. There is no underlying legal or trade examine its member banks, with prior
obligation. approval by the Monetary Board, has
b. Client is not properly identified been restored.
c. Amount involved is not commensurate
with the business or financial capacity
d. Taking into account all known C. Bank Rehabilitation
circumstances, it may be perceived that The PDIC may grant financial
the client’s transaction is structured in assistance to distressed banks if it is
order to avoid being the subject of proven to be a less costly alternative
reporting requirements under the Act. than closure.
e. Any circumstances relating to the
transaction which is observed to deviate D. Receivership of closed banks
from the profile and/ or the client’s past Once a bank is ordered closed by the
transactions with the covered Monetary Board (MB) of the Bangko
institution. Sentral ng Pilipinas, the PDIC is
f. Transaction is in any way related to an designated as statutory receiver. The
unlawful activity or offense under this PDIC upon receipt of the MB resolution
HEADS:
ordering the closure of a bank,  The net amount due to any depositor
immediately physically takes over the for deposits in an insured bank, after
closed bank. Receivership is the stage deducting offsets, less any part thereof
within which the PDIC manages the which is in excess of P250,000.
affairs of the closed bank and preserves  Trust funds and safety deposit boxes
its assets for the benefit of creditors. are not covered.
E. Liquidation of closed banks “After deducting offsets”: Consistent

After it is determined that the closed with the rulings in Gullas vs. PNB and
bank can not be rehabilitated, the PDIC Republic vs. CA recognizing the debtor-
shall recommend the liquidation of the creditor relationship of the bank and the
assets of the closed bank. Liquidation depositor, set-off takes place ipso jure
refers to the recovery and conversion of with respect to the depositor’s bank
assets into cash for distribution to all deposit and his matured loan with the
creditors in accordance with the order of bank.
creditor preference pursuant to law.
Special rules
INSURANCE FUNCTION 1. PDIC liability is on a per bank basis.
1. Nature: Compulsory insurance on all Accounts in a bank, even though in
bank deposits several branches, are to be added
2. Coverage: “Insured deposits” - the together, provided that they are
net amount due to any depositor for maintained in the same capacity and the
deposits in an insured bank, after same right for his benefit either in his
deducting unpaid loans and other own name or in the name of others.
obligations of the depositor to the closed  Capacities: individual
bank. In no case shall insured deposit account, joint “and” account,
exceed P250,000 per depositor. joint “and/or” account.
3. Specific risk insured against: Bank 2. The insurance premiums are to be
closure only. Thus, losses due to a bank paid by the insured bank, not the
robbery are not covered. depositors.
4. Amount of insurance: Maximum of 3. In case the depositor’s account is
P250,000.00 per deposit (RA 9302) more than the insurance coverage, the
5. Condition precedent for balance may still be recovered from the
entitlement to payment: Filing of claim PIC after the final liquidation of the
within twenty-four months from order of remaining assets of the closed bank.
closure 4. a. If the account is held jointly by
6. Manner of payment: two or more natural persons, or by two
a. Cash or more juridical persons or entities, the
b. Transferred deposit – A deposit maximum insured deposit shall be
in an insured bank made divided into as many equal shares as
available to a depositor by the there are individuals, juridical persons or
PDIC as payment of the insured entities, unless a different sharing is
deposit of such depositor in a stipulated in the document of deposit.
closed bank and assumed by b. If the account is held by a
another insured bank. juridical person or entity jointly with
7. Effect of payment by the PDIC to one or more natural persons, the
the depositor of his insured deposit: maximum insured deposit shall be
a. Discharges the PDIC from further presumed to belong entirely to such
liability juridical person or entity: Provided,
b. Subrogates the PDIC to all the further, That the aggregate of the
rights of the depositor against interests of each co-owner over several
the closed bank to the extent of joint accounts, whether owned by the
such payment. same or different combinations of
individuals, juridical persons or entities,
“Insured deposits” shall likewise be subject to the
maximum insured deposit of Two
C HAIRPERSONS
151
hundred fifty thousand pesos DEPOSIT
(P250,000.00). Governed by R.A. Governed by R.A.
No. 1405 No. 6426
Authority to terminate insured status 4 exceptions + 1 exception + 1
1. Non-payment of insurance premiums exceptions found in provided under AMLA
2. Continued engagement in unsafe and special laws (R.A. No. 9160)
May be garnished or GENERAL RULE:
unsound banking practices Exempt from
attached (not a
 Sec. 9 of RA 6426 (‘An Act Instituting violation of R.A. No. attachment,
a Foreign Currency Deposit System in 1405) garnishment, and other
the Philippines, and for Other court order and
processes.
Purposes") and Sec. 79 of Central Bank EXCEPTION: Salvacion
(CB) Circular No. 1389, dated August 13, vs. CB
1993, mandate that foreign currency
deposits shall be insured under the
provisions of RA 3591, as amended. OTHER FEATURES:
Under CB Circular No. 1389, depositors 1. Authorized banks may adopt a
are entitled to receive payment in the numbered account system for recording
same currency in which the insured and servicing deposits in non-checking
deposit is denominated. accounts
2. Foreign currency deposits are exempt
Note: The PDIC law is not applicable to from taxes except the interests
Offshore Banking Units. (P.D. No. 1034) 3. In the event a new enactment or
regulation is issued decreasing the rights
UNCLAIMED BALANCES LAW granted under the law, it shall not apply
(R.A. NO. 3936) to FCD’s already made or existing at the
time of the issuance of such new
ELEMENTS OF UNCLAIMED BALANCES regulation or enactment.
1. There must be a claim or deposit of:
a. money,
b. bullion,
c. security, or
d. other evidence of indebtedness
2. The credit or deposit must be with a
bank, building and loan association,
or trust corporation; and
3. The credit or deposit is in favor of a
person:
a. who is dead, or
b. who has not made further deposits
or withdrawals during the
preceding 10 years or more.
LEGAL CONSEQUENCE
 The unclaimed balances may be
subject of escheat proceedings, after  In a sui generis case, the SC allowed
proper publication and the depositors garnishment of such deposits of a
still do not lay claim to them. transient American tourist arising out of
a heinous crime committed against a
FOREIGN CURRENCY DEPOSIT ACT (R.A. Filipino minor since to hold otherwise
No. 6426) would result to injustice to a citizen
perpetrated by a foreigner. (Salvacion,
PESO DEPOSIT FOREIGN et al. v. Central Bank et al., 278 SCRA
CURRENCY 27)
HEADS:
Note: This case does not constitute

another exception, the SC only ruled as
such due to the special circumstances of
the said case.
REPEALING LAW TO UNIFORM

CURRENCY ACT (R.A. No. 8183)
 All monetary obligations shall be

settled in the Philippine currency which
is legal tender in the Philippines.
However, the parties may agree that the
obligation or transaction shall be settled
in any other currency at the time of
payment. (Sec. 1)

C HAIRPERSONS

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130 2005 CENTRALIZED BAR OPERATIONS

I. GOVERNING LAW (Bar Review SCOPE OF APPLICATION: The GBL

2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

ORGANIZATION AND OPERATION

mortgages. (GSIS vs. Eduardo

III. CLASSIFICATION OF BANKS ORDINARY BANKING

enterprise equity in Central Depository,

e. Other loans or credit a. His spouse or relative within the

Types of deposit accounts (Handbook on

DEPOSIT DEPOSIT C. OTHER FUNCTIONS

2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

l. messenger, courier and postal 3. The act or omission has caused

8. Government agent (Secs. 117- 1. To take charge of the assets,

2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

3. Payment shall be in accordance with acceptance in the payment of debts,

EFFECTS OF APPOINTMENT OF However, a check which has been

its business involving bank deposits.  Illegally acquired property extends to

2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

COVERED ENTITIES JURISDICTION

PERSONS LIABLE PURPOSES:

E. Liquidation of closed banks “After deducting offsets”: Consistent

Note: This case does not constitute

REPEALING LAW TO UNIFORM

 All monetary obligations shall be

2005 C ENTRALIZED B AR O PERATIONS E XECUTIVE C OMMITTEE AND S UBJECT

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